A New Mortgage Rule For Canadians And How It Will Impact Borrowers

Finance, Real Estate

Right now we’re seeing a few shake-ups by policy-makers in an effort to quell the hot markets of Toronto and Vancouver.

 

 

Back in August, Vancouver introduced a 15% tax of foreign buyers in an effort to halt the run-away prices which have leapt far beyond the affordability of most local buyers. And it hasn’t stopped there as the media and government have sleuthed out some shocking shady practices on how people are profiteering from the real estate market. An article in today’s Globe and Mail summarizes the beginnings of how the Trudeau Government Will Close Foreign-Buyers Loopholes.

But it doesn’t stop there. We were informed by Jake Abramowicz (now The Mortgage Jake Team) that a significant change was announced only moments ago – per this Globe and Mail article called Ottawa Unveils Sweeping Changes To Housing Rules – which will impact all real estate buyers – not just foreign capital. Here’s his email which encapsulates the new policy, and its impact for Buyers:

 

 

Effective this morning the Finance Minister announced a major #mortgage #rule #change that will affect Canadian real estate buyers

As I predicted on September 8th – effective immediately – all high-ratio borrowers must now qualify at the current 5 year POSTED mortgage rate regardless of the mortgage rate and term they were considering.
Yikes!

What does this mean? Well, the qualifying rate is the interest rate lenders use to assess someone’s ability to qualify for mortgage financing. Until today, a lender could qualify anyone based on the 5 year discounted rate (today it’s posted at around 2.49%) and not the official posted interest rate (which today, is posted at 4.64%).

How this affects affordability is crucial, because if you have less-than 20% down you must now qualify for any mortgage at the new, higher qualifying rate.

Let’s look at a real-world example:

Steve and Jennifer earn $110,000 annually combined and have $75,000 saved. They’re looking for properties that will sell in the $750K range plus closing costs.
Under the old rules, they could have borrowed $700,000.
Under the new rule introduced today, they now qualify for a $570,000 mortgage.
WOW! That is a $130,000 drop in affordability. Their only option is to get enough capital to place a 20% down payment on a purchase OR buy something smaller and cheaper.

Note this is hot-off-the-presses so I’ve put in a bunch of calls in to see how each lender will implement this, but suffice to say this is the proverbial shoe we were waiting to drop to calm our hot real estate markets. Do note, if you have 20% down or more, you’re not under the new rules unless the banks follow-suit. And if you have already qualified for a variable mortgage, this doesn’t impact you because you’re already qualifying under the new rules. Also, if you purchase a dwelling before October 17th, then your previous financing commitment will be honoured.

Have questions? Contact The Mortgage Jake Team!

 

Here’s a follow up piece in The Globe And Mail called Four Major Changes To Canada’s Housing Rules that offers a full summary of the new rules.

There’s no question this will impact a significant number of Toronto real estate buyers currently searching for a property to purchase, and potentially cool the market. If you’re in the Toronto real estate market, we encourage you to confirm how this new policy might impact your own purchasing decision.

Have questions? Please know we’re here to help!

~ Steven and the urbaneer team
earn you trust, then your business

Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage – (416) 322-8000

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